A compromise agreement is a legally binding agreement between a business and an employee under which the employee agrees to settle their potential claims and in return the employer will agree to pay financial compensation. Sometimes the agreement will include other things of benefit to the employee, such as an agreed reference letter.
An employee can make a claim against a business under both their contract of employment and under statute. These claims may arise:
on recruitment;
during employment; or
when their employment has been terminated.
In many cases, a business may want to make a payment to an employee in return for an effective waiver of their potential claims. Businesses can enter into an agreement with an employee to settle potential claims when they are still working for the business, but in most situations, their employment will have ended (or be about to end). Although it is usual for compromise agreements to be entered into where employment has terminated (or is about to terminate), it is possible to enter into one where employment is continuing. Although it is usual for compromise agreements to be entered into where employment has terminated (or is about to terminate), it is possible to enter into one where employment is continuing.
The contents of a compromise agreement are largely at the discretion of the business and the employee involved. Examples of common clauses include:
Compensation for loss of employment.
Contribution to legal fees.
Waiver of claims by the employee, including warranty that the claims listed are the only claims which the employee has against the employer.
Re-assertion or modification of existing restrictive covenants.
Indemnity from employee in relation to tax and National Insurance Contributions.
Draft of Agreement for Compromise between the Employer and Workman for Payment of Compensation under Workmen's Compensation Act
This Agreement is made at __________ on this ______ day of ___________, 20___, between A B Co. Ltd., a company incorporated under the Companies Act,1956 or Companies Act, 2013, and having its registered office at ________________ hereinafter called "the Employer" (which expression shall unless repugnant to the context or meaning thereof include its successors and assigns) of the ONE PART and Shri X son of _________, resident of _______________ hereinafter called "the workman" (which expression shall unless repugnant to the context or meaning thereof, include his heirs, executors, administrators and assigns) of the Other Part.
Whereas the workman was employed by the employer in its factory in the capacity of ___________ and on ________ he was injured by an accident arising out of and in the course of his employment, in respect of which he claims that the employer is liable to pay him compensation under the Workmen's Compensation Act.
Whereas in order to avoid litigation in respect of the said claim, the parties hereto are desirous that the liability of the employer (if any), shall be satisfied by the compensation herein agreed to be made.
Now This Deed Witnesseth That It Is Hereby Agreed As Follows:
1. The employer shall pay the workman the sum of Rs. __________ as compensation for such injury as aforesaid on __________.
2. The employer shall also pay the workman the sum of Rs. _________in respect of the costs of his medical attendance and other expenses.
3. The workman shall accept the before mentioned payments in full
discharge of all liability of the employer to pay compensation under the Workmen's Compensation Act or any law for the time being in force and doth hereby release the employer from any and all liability in respect of the injury caused to the workman and from any and all liability for any damages, which may result to the said workman in future on account of the said injury.
in witness whereof, the employer hereto has set its hands and seal and the workman has set his hands hereunto and to a duplicate hereof, the day and the year first hereinabove written.
The common seal of ABC Co. Ltd. has been
hereunto affixed pursuant to the Resolution of
its Board of Directors dated the _____ day of
__________, 20___, in the presence of S/Shri
______________ and _________________
Directors who have signed in token thereof.
Signed and delivered by A, the withinamed workman
WITNESSES;
1.
2.
No specific documents are required to execute or draft a simple compromise agreement. However, one must scrutinize the identity proofs of the parties entering into the agreement. Moreover, one should also scrutinize the documents relating to the claims being settled by way of the simple compromise agreement.
No set procedure is applicable in the making of a compromise agreement. Once the agreement has been drafted by a lawyer, it should be specifically and carefully read by both the parties to the agreement. Any necessary changes required to be made shall be carried out and once the agreement is finalised, it shall be signed by both the parties along with the requisite witnesses. The agreement is then legally binding when it is printed on judicial stamp paper/e-stamp paper and signed by both the parties. The stamp paper value depends on the particular State in which it is executed. Each party should thereafter keep a signed copy of the Agreement.
A compromise agreement is a legal document that includes clauses stating the terms and conditions between the parties. It needs to be printed on a judicial / e-stamp paper of the correct value and signed by both parties. The agreement is required to be registered after stamping with proper value, as per State laws.
While drafting agreements, it is important to know as to what terminology should be used while drafting the same as a small ambiguity in the terms can also jeopardize the claim of the parties. This is why it is crucial to have a documentation lawyer to assist you with the drafting an agreement. Being an expert in the area of documentation law, a documentation lawyer knows the nitty-gritty of the legal procedures and the requirements involved in drafting an agreement. With the experience attained in the field, he/she can guide you with the right advice while entering into an agreement and can make sure that such mistakes are eliminated that cannot be resolved even through further legal procedures.
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